Four Major Flaws With the EU’s New Climate Plans

Last week, the European Commission presented its so-called Fit for 55 proposals, a raft of legislative initiatives intended to adapt EU law to the 2030 target of reducing CO2 emissions by 55 percent from 1990 levels.

The idea is to adapt legislation originally intended to achieve a 40% reduction.

This undertaking, however, is marked by serious shortcomings. Herewith, I summarize what’s wrong with it, listing four main flaws.

1. The European Commission is employing a top-down approach, riddled with taxes and spending

The European Commission seems to take former U.S. president Ronald Reagan’s characterization of “government’s view of the economy” as a manual, rather than as a warning. As Reagan summarized the government’s approach: “If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.”

Most remarkable here is the Commission’s intention to impose a de facto ban on gasoline and diesel cars by 2035, even if France seems keen to extend this until 2040.

When even France is less restrictive, you’re not in a good place. Feeling the need to resort to outright prohibition, the Commission is clearly not putting great trust in innovation to come up with economically efficient, CO2-neutral cars.

A notable change is the expansion of the EU’s cap and trade scheme, which puts a price on emitting CO2 but allows companies to buy and sell their right to do so.

The Commission wants to expand this so-called Emissions Trading System (ETS) – set up 16 years ago and covering power plants, intra-EU aviation, and energy-intensive industries – to include buildings, road transport, and shipping.

The expansion would start gradually in 2023 and be phased in over three years, as the emission-rights regime for aviation is being tightened up and sectors not covered by ETS are made subject to emission-reduction targets, with binding targets per member state.

EU minimum excise-duty rates on various energy sources, like motor or heating fuel, would also need to be increased, and a jet-fuel tax would need to be introduced on intra-EU flights, on top of a tax on maritime fuel.

Opponents of the proposals, which still need to be approved by both EU member states and the European Parliament, include the shipping industry, which hasn’t exactly welcomed its inclusion into the ETS system.

The International Chamber of Shipping described the proposal as “an ideological revenue-raising exercise, which will greatly upset the EU’s trading partners,” as it would involve “non-EU shipping companies to be forced to pay billions of euros to support EU economic recovery plans.”

This doesn’t even account for another part of Fit for 55, whereby the Commission intends to create the world’s first carbon border tariff, to be levied on imports of goods including steel, cement, and aluminum, to be phased in from 2026.

This step is deemed necessary because two-thirds of CO₂-emissions are likely to continue, only now outside of the EU, causing “carbon leakage” – a phenomenon notably hard to estimate, although we know that China has long outpaced the U.S. and the EU in terms of carbon emission.

In response, Belgian employer federation VBO-FEB issued a warning about this “carbon border adjustment mechanism,” stating that “policymakers must be careful that (…) this will not cause other countries to impose countermeasures or cause supply chain distortions, leading us to import more finished products than raw resources.”

The question remains as to whether this is not a protectionist measure in violation of the WTO agreement – especially when certain European producers would be exempt. In any case, it will unleash lots of extra bureaucracy, especially for small companies.

Also in line with Reagan’s description of government thinking is the European Commission’s plan to spend billions of euros to compensate for the damage done by its own measures – such as its proposal for a new “social climate fund” “to prevent fuel poverty,” using one-fifth of ETS revenue, on top of another fund, the €100 billion Just Transition Mechanism to help coal-dependent countries like Poland make the transition away from coal.

Combined with the Commission’s demand to get at least 50% of the income derived from the new ETS transport and buildings revenue, this would mean that the ETS system would morph into an outright EU tax – a dream eurocrats have been pursuing for years.

2. The proposed measures disproportionately hurt the poor

The European Commission itself has admitted that measures like putting a carbon price on heating fuels “will not affect households equally, but would likely have a regressive impact on disposable income, as low-income households tend to spend a greater proportion of their income on heating.”

It is testimony to how divided opinion is even within the Commission, where many are questioning the rather extreme approach of EU Climate Commissioner Frans Timmermans.

The predicted hardship for the poor then serves as yet another excuse to spend money – now to alleviate the damage done by the measures.

The Commission is seemingly unaware that to finance spending, taxes are needed, and even corporate taxes are ultimately disproportionately borne by low-skilled workers. There is no free lunch, even when paying tribute to the Climate Gods.

Over the last few years, as exemptions for the CO2 emission-trading system have been reduced, this scheme has put upward pressure on energy prices, so it can be feared that this will cause more damage to the economy, particularly hurting the poor.

The Commission thinks that CO2 prices in Europe will increase by 50 percent by 2030 if its plans are implemented – but some hedge funds already project an increase of almost 100% by the end of this year, with the more modest current arrangement in place.

Pascal Canfin, chair of the European parliament’s environment committee, who started his career with the greens but is now a key ally of French President Emmanuel Macron, has called the plan to create an emissions trading system (ETS) for transport and buildings “politically suicidal” and “a huge political mistake.”

He stated: “It’s a very bad idea,” adding that the Commission was “going to trap” lower-middle-class families, noting that those hit the hardest would be people in regions with poor public transport and residents who could not pay for energy-efficiency upgrades to their homes.

This follows the French government’s experience with the “gilets jaunes” (yellow vest) protesters, who managed to get Macron to abandon a fuel-tax hike in 2018. France will take over the EU’s rotating presidency in 2022; let’s see how much then remains of the European Commission’s grand plans.

Germany’s automobile industry has also warned that the proposed measures may have a “substantial” impact on jobs at auto suppliers – so even if the greens form part of the new German government, this may not all sail through so smoothly.

3. The European Commission is not respecting the idea of “tech neutrality”

It’s one thing to impose a target to reduce CO2 emissions. It is quite another to try to micromanage how this can be achieved.

Nevertheless, that is what the European Commission is doing with its so-called “EU taxonomy for sustainable activities,” a classification system meant to clarify which investments are environmentally sustainable, in the context of the “European Green Deal,” of which Fit for 55 forms a part.

Despite all the evidence that nuclear power is CO2 neutral, the Commission refuses to acknowledge this reality.

This denialism is the result of pressure by Germany, which decided to shut down all its nuclear plants, a policy that has driven energy prices in that country to record levels while also supporting the coal-energy sector.

Germany thereby goes against the in-house scientific body of the European Commission, the Joint Research Centre, which declared earlier this year that nuclear power is a safe and climate-friendly energy source and should be considered as “green” under the EU’s classification system.

To add insult to injury, the Commission considers biomass renewable energy – despite the fact that burning wood for energy, which is what biomass is ultimately all about, typically emits 1.5 times more CO2 than coal and three times more than natural gas.

The EU is the world’s largest net importer of wood pellets; the main net exporters are the United States, Canada, and Russia.

Green campaigners have been complaining about EU member states like Estonia that allow intensive clear-cutting of trees in forests protected under EU Natura 2000 rules.

One NGO, the Estonian Fund for Nature, has also pointed out there is a direct connection between the subsidized growth in the biomass industry and EU renewable-energy policies.

More than 500 scientists have urged the EU to stop treating biomass as carbon-neutral. Even if one disagrees, and believes that biomass can be sustainable and renewable, it still doesn’t make sense to privilege biomass over nuclear power.

Biomass represents almost 60% of renewable energy consumption in the EU, so the implications of no longer considering it as renewable energy would be grave: wind and solar power contribute only marginally to the EU’s energy provision, irrespective of their environmental downsides.

Changing biomass’s renewable status would make it almost unavoidable to recognize nuclear power, which would be embarrassing for the likes of German chancellor Angela Merkel, who has been putting so much political capital into defending Germany’s nuclear exit.

4. The EU’s grand plans may not do that much for climate change

At the end of the day, the goal of all this is to counter CO2 emissions in a bid to halt climate change.

Here, an interesting contrarian view comes from Danish economist Bjørn Lomborg, author of the bestseller “The Skeptical Environmentalist.”

Lomborg has highlighted UN Climate Panel estimates that the negative impact of climate change in the 2070s would be equivalent to reducing the average income between 0.2% and 2% – meaning that global incomes would increase only by 356% by then, and not by 362%.

He then contrasts this with the enormous cost of EU climate policies, which would “quadruple electricity wholesale prices in just a decade,” and he cites academic studies showing the real costs of EU climate policies to be four times higher than optimistic EU estimates, ultimately amounting to a whopping €4 trillion to €5 trillion.

Lomborg estimates that the new EU target of 55% carbon-emission reduction will reduce the global temperature by the end of the century by an immeasurable 0.004°C – “equivalent to postponing global warming by six weeks in 2100.”

Surely we can agree that it is hard for both proponents and skeptics of expensive climate policies to provide hard proof that they are right in their arguments. But these estimates should make even the most committed EU Commission climate fanatic pause for reflection.

Read more at RealClearEnergy